Tariffs, Inflation, and Bank Earnings

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A Landa lining with us was Blackrock right now hugely. We got a great set of guests to day now solid. It's like, you know, summer dunkin Donuts, you have the little dunkin Donut pause.

Yeah, you know, it's like it's coming in studio to the.

Studio, and it's like they just they just they're just coming in for the from Mike's air conditioning. Don't kid yourself, it's cooler here than Larry's air conditioning.

Good morning, Amanda. I have to impress you.

I looked at the not the FED yield curve, which is not the two year ten year, but the two year thirty year curve. I regressed it back three decades and we're not even to like normal steepness now, are we right?

Good morning? Thank you for having me.

You're hitting on one of the themes that is actually pretty consistent across our platform, which is an expectation for steeper curves, and I think normal, yes, and I think we've already had some steepening. But the expectation across a variety of different tasks is that that steepening trend could continue, driven by a multitude of factors, but at the long end, the fiscal situation that ranks among them. And I think from our perspective, and this goes back to our views

So Marcus Ashworth does a heavy lifting for me at Queen Victoria Street. All I do, folks, is gammer and go to lunch. Ashwarth really works. European long bonds are near their cell by date on the desk. Do you have the tension I have when I look at a five year thirty or a Japanese twenty or a French ship. It's like a game of risk, folks.

I mean, I think all of our platforms are focused on where can they get the best attractive return, and oftentimes outside the US is something that's on the radar for sure.

So are you buying the I'm going to make some news here, are you buying the French thirty?

Well, I think it just depends on the mandate and how they're allocating across. But I do think when you think about some of the fiscal developments in Europe, whether it's German infrastructure defense spending right like, you have a return of yield support in Europe that wasn't there for

In the US market, the US corporate highild market, I'm looking at the id GO function on the Bloomberg terminal, gives me all the returns across all fai s income that's been the best performer, like by far, how do you think about the hygyiold market.

So this is something that on actually in early April April tenth, we had outlined an expectation that actually corporates might be able to navigate this, and we were comfortable selectively moving down in credit quality into the high end of high yeld, not chasing all the way down the credit spectrum, but into the high end of highyield. And as you noted, doble B's have won one of the best performers so far you're to date. We're expecting that

It's like the NFL, we got a whole team in a control room in downtown Manhattan. Kylin just emails from our surveillance control over sure where we need to rule.

That was a massive jargon.

So when a high yield spreads are tight, Paul Helby, that's price up, yield down, and so the yield is closer to the government.

I think that's what the bond people think. Okay, I mean I learned define Lisa bromok.

Okay, they say the ref's got to go out in the field.

We can continue to talk to Amanda after that.

So what are we thinking about earning share? What are you guys going to be looking for from an earning season this year?

Yeah, and I think just to go back to your point time on spreads, the tighter spreads just means a receptivity towards credit risk, right, more comfort towards credit risk.

That's how we would think about it heading into earnings.

One of the key things that we're watching is the speedback loop between corporate margins, the layoff rate, which is still low, consumer spending in overall economic activity right now. If you can see this on the Bloomberg terminal, average EBITDUM margins for ig are above twenty percent. Average EBITDUM margins for high yield are above thirty percent. So what we're watching is is there pressure on those margins because of higher input costs for example, and do corporates flex

Because we're really not seeing it in inflation data, yet it doesn't appear to be so maybe the consumers aren't going to bear the big brunt bed I don't know.

I think our expectation is that inflation is just stubbornly above target.

It makes it difficult for the FED to cut in this environment.

If you dig under the surface from yesterday's data, you did see some categories have upward pressure, and I think it was telling actually that we were never expecting a cut in July, and I thought even September was difficult. The market seems to be further pricing out the next bed rate cut, and I think that's probably appropriate.

Don't be a stranger more questions, is your conditioning okay?

It's great, better.

Than Blacklow come in to line him.

Thank you so much, greatly appreciate it.

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Banker Innings and Now with Goldman, Sachs and Morgan standing out. Someone with decades of experience here, Gerard Cassidy. Gerard, I've been dying to ask you this question. I got a JP Morgan with an eighteen percent return on equity.

Everybody is factors away in a ten, nine and eight an.

Eleven percent return on equity. Is JP Morgan unique and superior or the others lagging?

Which is it?

I think it's that JP Morgan is unique and superior, partly due to the fact, you might recall, during the pandemic there was a surge of deposits in the US banking industry due to the actions taken by the Federal Reserve in the US government. JP Morgan, along with the other big banks saw a big increase in their deposits, and JP Morgan invested them in a very short duration portfolio, cash up at the FED and overnight funds, whereas other

Gered. You and I go so far back. We used to go to the Saint Patrick's state party in Boston where Albert Gallaton would show up.

I mean, we go way back. What happens the day Jamie Diamond decides to retire? I mean, what happens to JP Morgan?

You know, does it? Does it? Crator? Do they move on? How do you see that game happening? Gerard?

They certainly do not Creter in our review, He's got some very strong era parents, in particular Marion Lake, who heads up the Consumer Bank. But Tom, you're bringing up a good point, because when he steps down, the stock is not going to react well to that news. The guy is really in a class by his own. He's in the Hall of Fame and bank Cegos and he's going to be hard to replace. But it doesn't mean

Gerard.

When President Trump was elected to a second term here, one of the Trump trades, if you will, was to own financials bank stocks here in large part to the expectation maybe looser or regulatory framework. Is that kind of playing out? How does the market discounting that these days?

Actually, Paul, it played out extremely well after he was elected in November, and the bank stocks were clear outperformers in twenty twenty four.

They were also doing very well through the end.

Of February, outperforming the market, and then of course the Trump tariff policies were announced, the stocks sold off very hard.

But since the first week of April, you.

Know, the bank stocks, not including yesterday's trading action, the bank indicies had recovered about thirty five percent, which put them near to date ahead of the S.

And P five hundred again the bank indices.

So I think what you're seeing is that the Trump trade is still working for the banks. And the reason for Paul is that the deregulation outlook for the banks is very positive.

So yard here is by the group, here is it try to be selective. How are your clients thinking about some of these big banks, because boy, the earnings over there today and yesterday you look pretty solid across the board.

They really do.

And it's a good question, and you can certainly buy the group through one of the ETFs that we're all familiar with. But I think if you are in the camp that the Federal Reserve could be lowering shor term interest rates between now and the end of the year twenty five to fifty basis points.

Maybe a year.

From now the short end of the curve is down seventy five or even one hundred basis points. Is a positive slope to the curve, assuming the tenure stays anchored at four and a half percent, a three and a half three and three quotas sped funds four and a half ten uyere is very.

Positive for the banks.

In fact, you have to go back twenty years to find that kind of environment where the Fed funds rate it was over three percent with a positive slope. So that would suggest regional banks could which I've logged the money centers could be the play for the next six to twelve months.

Gered I need to recover my portfolio. I don't own bitcoin, I didn't buy JP Morgan. Give me the small bank stock at Gerard Cassidy at Tucker Anthony.

RLDA this morning.

That's a great name, it's not so small.

The challenge Tom is that the small banks are being acquired. But I steer people to popular in Puerto Rico. And what though it's not a community bank anymore. Puerto Rico has fully recovered, obviously from the terrible years they had five years ago. And this is the leading bank in the on the island and they're doing a great job and they have a ton of excess capital and the buyback should be very supportive.

Plus has road trip to me short on it.

Gerard Cassidy with RBC Capital Markets Legendary.

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This is well.

Timed with David Malpass is making jokes about cors burying, you know, taking physics, call it, you know, a huge program back in her youth. But the scope and scale of what mister Melpass has done, including running for a Republican office within the Empire, stayed out of a pickup truck or a van. It's like you know, VW van

There's a little bit going on. Hi, Tom and Paul, good to see you.

I look at the Indonesian rupea. I'm sure it's the first thing you looked at this morning. And I got a moonshot of Indonesia weakness from twenty eleven. I guess is capitulate the right words. They've capitulated to Trump tariffs for the World Bank and for emerging markets. If we get Indonesia like tariffs, do they unravel?

Currencies are really important to people. If you think about working people around the world.

They buy that. All they do is get.

A wage and then spend it and they and that's where inflation is the rub And so as you I do wake up every morning thinking about what currencies are doing around the world. There's a huge amount of pressure on weaker currencies and they're trying to find how they're going to interact in between the US and China. So that's the source of this, you know. The mistake, and we should remind people of this was becoming the world

So that takes work to get a case. So you have the voice of the president.

I mean you come from the Republican side. If you were to advise the group, mister Bessett and all, do we want to mandate a weaker dollar policy or is that feasible that we can we can tell the rest of the world what to do.

It's clearly what we're doing is building manufacturing in the US so that it's competitive and that it can have verticals supply chains that get it done. You have to have small business loans, You have to have workers with skills, better education system, and they're working on that and that will work to give to give you the trade balance, more balanced trade.

That we need.

I think currencies are a slippery slope because once you weaken your currency, you get more prices, you get more inflation out of that. So my view is that we ought to be defending the dollar intense, defending the dollar and making clear to the world it's going to be the US dollar for fifty years and invest in US or losing.

I can't say how much he bes shown the door at the White House faced.

I don't think.

I don't think that the White House wants good outcomes for workers.

Come on, David, I'm gonna stop you.

President Trump has a history at every step of saying he wants a week dollar to boost.

Exports, he wants good outcomes for workers, and that's what's going on right now. So I'm not sure I agree with that. If you want the yield curved lower, you defend the dollar and everybody will invest in your bonds and in your bills, and.

That is going on. Look at what's going on in Europe.

The euro is strengthening and they're feeling their oats because they finally started doing some defense spending. And so that Trump is changing the world pretty rapidly in a way that we'll make it more secure from Russia and China, and we'll get a lot more investment into the US. But I don't think the markets should be should expect dollar weakness out of that policy. If you're doing good policies in the US, it's going to be dollars supportive.

David, with all the tariff discussions going on, is globalization dead or dying because we all grew up with globalization, Well.

We did, but it was a mistake in many ways. So globalization, so let's use two words. Globalization means getting parts from other countries in an efficient way. So that made sense in areas, But then was it sensible for Germany to get its energy from Russia? No, from the Soviet Communist Soviet Union and they cut sweet ardeals to do it. That was a mistake. Same with China. We just went too far and had no knowledge of what

But I think we will.

Stay in a market based global economy where you can outsource, but a lot of it is going to be made in the United States.

Tariffs in general, is that the tool to get us there? Do you think is that the best tool to get us there?

What we know is that the WTO wasn't working, and the whole idea of most favored nation and permanent normal trading relationship didn't work. That was the whole system that the US pioneered and led on and really got hurt by. It was the idea of we lower ours to everybody at the same time, regardless of what they're doing. So that's getting that's getting a fully rethought. I think it can lead to a more balanced relationship. But you have you really have to start with it.

China.

You know, China is intensely communists and became a dominant country playing that game.

We need a new game. Let me get the question out of the way.

Have you been contacted by the White House and their new FED chairman search?

I don't want to go into conversations. I want to really focus on how do you fix the FED? And you have to fix it in its models, in its balance sheet, and in its regulatory policy. This is going to take an intense effort by the whole board. There's got to be leadership of moving the board to the idea that they're.

Different ways to If the president sets up a new chairman of whatever ILK, whether it's David Malbus or anyone else, can't the other presidents and governors just start dissenting, almost as a dissent vote.

People will talk about that.

I think leadership really can dominate within the FED system. You remember that it's not just the US FED. The FED is the central player in the global central banking system and has lots of latitude to make it work.

Can you tell me why Glenn Hubbard's name is not being mentioned. I mean, he's absolutely definitive at Columbia. He's our most articulate supply side expert. Why in God's name as a president not talking to Professor Hubbard?

Everyone you said our great candidates Kevin and Kevin and Scott and Glenn, and so I don't know the list. I hope that the search is wide and that that people recognize that we don't want incriminalism, we want really a sea change in how the FAT operates in a way that is confident.

Is there any historical evidence back to McChesney martin nineteen fifty one that we're going to get a sea change within that institution?

What yes on a case? So Paul Volker obviously was a sea change point him, well, said Jimmy Carter.

As you think about it, Yellen even was a sea change, but to the negative side.

So some are nice. Some part of what we're doing has to be to reverse.

Album over there two minutes some sportsman like contact.

Paul saved the interviews.

With a little bit of hindsight here, what do you think this FED has gotten wrong?

Has wrong?

It's you know, the inflation obviously during Biden not recognizing it, but the keep keeping buying bonds when the rates were near zero that extended into twenty twenty one and twenty two. They were still doing QE that How much did they lose four taxpayers on that alone? A giant the buildings that you see in the news, why are you building it?

At World Bank?

I gave up leases on three three buildings during COVID, recognizing office space in DC was going to be cheap as can be and that that helps net income a lot. They're going the other way of building this, you know, a palace.

But every room has a Bloomberg terminal. Those those are really expensive.

Oh really, you know, we thank you for writing to check David Malpass Bank, thank you so much.

And small business lending. That's a big mistake.

Not enough of it. Okay, well you back somehow.

I think it's going to be an eventful Central Bank discussion mister Malpass of course iconic with John writing it, Bear Stearns going on to a World bank as well and working within Republican Powletics.

This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on Applecarplay and Android Auto with the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.

When we invented this exercise, folks, it was thinking along the lines of going from Gina Martin Adams to Patrick Armstrong. Mister Armstrong is with Plurimi Wealth in London is a wonderful transatlantic view absolutely definitive onbelief, conviction and asset allocation. I just got a note from Ira Jersey of Bloomberg Intelligence. Patrick, he's coming out with a study on the thirty year bond.

And what does it signal? Well, I wouldn't want to own it.

I'd rather short the thirty year of treasury. We don't shorten at the moment, but I think we're in a period where inflation. There's going to be unequivocal spikes and inflation over the next decade and over the next twenty years. All populist regimes. The endgame is printing new money to pay off the old debt. It's Inflation's a big risk, and the market for the next decade is priced for perfection.

Do you follow on that?

We will see a breakout higher in the inflation adjusted the real rate whatever country, and that will pinge upon equity performance.

I don't even know if the real rate necessarily goes a lot higher, because it's the inflation part. It's the big risk. So if you're getting right now, you can lock in with a tip inflation plus two point three percent, no matter what that inflation is over the next thirty years on the thirty year tip right now. So that's a pretty compelling real yield. What I think is the nominal yields that people who are buying them at five percent thinking they're going to get two point three percent

So Patrick, giving that backdrop, what's your allocation, your asset allocation today, how has that change? Maybe over the last six or twelve.

Months, it's not changed a lot. We added equities in April thinking we would hold our nose and stick with them because valuation has got to prety reasonable valuations, and then things came back much sharper than we ever would have expected. We haven't trimmed equities yet, so I'm at risk of being complacent that the topple trade continues. Trump won't put in measures that disrupt the market significantly, or he will pivot if the market force, if market forces

I mean, Paul, you know, I don't have any pithy response to this because Patrick's dead on.

And it's just like all all my radars up.

And that's why when I come in, I look at the French thirty and the Japanese twenty, and they're not pretty.

No, no, not at all. So I mean Patrick, here in the US there has been a lot to talk about who the next FED chairman is or should be. Should we be paying attention to any then.

You've got to I think that's one of the biggest tail risks is Trump just goes full chaos and puts someone who's even more dubbish than any of the central bankers who are there right now. So Waller is a dove, he's credible, his arguments make sense on why you would cut rates. But if he goes more extreme than that, and Jared Kushner comes in or one of his sons something really crazy, it's not totally implausible. And that's how he's thinking one percent interest rates. He thinks it's great news.

Patrick, don't be a strange We're going to come here and look at some economic data right now, Patrick Armstrong, we continue with REMI Health Management. We've got a really important economic set of data here coming off of CPI yesterday, and I get the PPA look at that Paul.

It's a string of zero signaling disinflation.

Yeah, absolutely, it's a.

Massively disinflated thing.

Equities pop right off.

The news, right off the news here, I mean PPI final demand month on month flat, the consensus was zero point two percent. Even if you xoff food and energy flat, no inflation at the producer level there the consensus was positive zero point two So even though I mean to analyze those rivers coming in below expectations.

I mean, equities pop here features up nine. It's not all that much to it, but the fact is it's a pop here with the VIC seventeen point seven zero thirty or bond even there comes in from a five oh one into the handle is a four point nine to eight. So price up, yield down there. And again, well, the revisions were higher, I'll cut you know, the concern crew some slack. The revisions came in a higher but nevertheless a disinflationary tendency.

I think that may work out to a churn.

We'll see with Patrick Armstrong or Plurimi, Well, Patrick, I love the distance you have, even when you're writing in the ft from mag seven from across the ocean, What does MAG seven look like into the July thirty earning season.

So the ones we own, I'm sticking with them through the earnings reports. So in Video's got some nice tail wins with opening up exports again into China. It's an expensive company again, the profit margins are incredible Meta and Alphabet. I think they're trading at very reasonable multiples market multiples with above market growth. We own Apple as well. That's what I'm a bit unsure of getting the US consumer.

Why do you own Apple?

It's buying back so many shares is the real driver of it. The thing I'm most attracted to is I've got a clear demand for Apple shares with all the cash flower of producers, and it's using that to buy its own shares. So it's a company that's not at a ridiculous multiple, lofty multiple. If they price it right on a new cheaper phone that doesn't destroy the margin on what they're selling right now, I think it's a very attractive value. If they don't get that right, and

I mean, I don't see I don't see Patrick Armstrong and a Tesla. I see even an MGTD nineteen three.

Yeah, it's a good Peter o'tool used. It's a solid one. Patrick. We saw earlier in the year people kind of dumping US assets, including stocks and moving over to Europe. Is that kind of played out or is that maybe a longer term trend.

We're still doing it, so every month it seems I'm selling a US company and buying a European one. Recently it's we still own half of our global portfolio fifty two percent. It is in the US, but if you look at a copway mark should be in the US, so I'm not totally in the US companies, those big cop tech are still dominant companies that look great. But incrementally, fiscal flust is coming through in Europe, and we do

We don't care. I mean, it's not why we head you on. Do you see a new totenam with their new coaching regime.

I don't know.

I'm a Manchester United fan. I know beat us in the European Cup final. But Tottenham's got some quality players, a good coach, probably better position to do better than they did last year in the league anywhere.

I don't know if they'll win Europe. Okay, you can come back.

Patrick Krstrung, thank you so just absolutely fabulous folks to look for his work often in the ft just says a great, great job. Patrick Armstrong there with.

This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on Apple, Cocklay and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa, play Bloomberg eleven thirty.

Let's do the newspapers and relax.

Let's do it.

Have you ever kicked your feet up at the Waldorf Astoria?

Okay, a lot of rubber chicken lunches there. It's really I can't wait to see them.

Well, that's the thing right, I don't.

Want to, but there's some just spectacular moments.

Well, you should check it out because it's starting to it's opening September, but it's starting to open to a few visitors for the main lobbies. So you can go check it out. The New York Post got there. The clock is still the clock. Yes, the clock is still there.

And there you know it's not there.

If you ever been to Sir Harry's Bar, there no longer, no longer there. We have two new restaurants there, so you can do that. Yes, the Peacock Alley Lounge.

Yes, us.

And what they do have is to the the murals, the interior designs. They restored them, so they kept that.

Extraordinary.

Yes, yes, so it's keeping that New York elegance that they say that New have lost over the years.

Yep, that's folks, Just one little vignette.

Please, When you walk down a hallway and the door is open and it's the room where Cold Porter wrote some of his giant songs of the middle twentieth century, that's the way they roll at the Waldorf for the estiary.

Well, love of Marilyn Monroe, I mean Frank Sinatra, I mean they've already kind.

Of been there, so it is coming back.

It is coming back, all right. So we'll go to the Boss and Globe okay, because they have this question out.

How do you like your lobster roll? Okay?

Do you like it cold with mayo, warm with butter? Or do you like it topped with caviar?

Cold?

Cold? Cold caveat?

I saw you you did something yesterday on social Yes, Greek yogurt.

Yes, I like mine with cold with Greek yogurt on a whole wheat hot dog butt. Okay, sorry, that's how I had.

A global technical director just fell off his chair in the control room.

That's how I like it. But the Boss and Glove gave some of their top picks. So if you're in the mood for one of the best ones around, they say you have to head two alive and kicking lobsters. It's a family run fish market. Maybe go to James Hooking Company, a fish shash in the middle of box Water.

You've been there many times.

If I've been there and there's always a line, is there it's just picnic tables and it's like it's like, are you It's back before they became Hampton's Like, I mean Boston lobsters, not like the Hamptons. You're not doing seventy bucks.

Producer Eric gave his topic. He said, Mabels in Maine, that is.

The place to go have an excellent lobster roll.

Yeah, thank you. I'm so damn hungry. Can we do like a door dish lobster roll and put it on red O's MX.

YEP, one more for you. Two big milestones this week that kind of showed the struggles of broadcast networks. The first one, Nielsen results actually showed the gap widening between viewers spending more time watching streaming services than broadcast cable. So it's starting to widen. Forty six percent of Americans TV time spent streaming services, led by YouTube, Netflix. They topped the driving force. Well, you know, schools out some more kids are streaming and kids like streaming, so that's

Thank you so much for doing this. Well, these are Titanic shifts. I mean this was back to Moffatt, Nathanson and Rich Greenfield. The audience is telling the fancy people.

What you do, and the advertisers are following you. Take a look at some of the advertisers on broadcast television. It's just the oh, it's just the healthcare, the drug things, because that's the audience.

And secretary trying to get rid of the drug heads.

Yep. So I don't know what that would do to the networks these days. Okay, that's just I mean, it's just the trend. We've been seeing it for years and years.

Did you do the newspapers today or did your intern to them?

Excuse me, analyst? Did you analysts to it?

No, No, they were off today.

I bet they were getting ready for Thursday.

Happy are under the bridge there at Grand Central Station, Lisa Mateo, thank you so much.

It is the newspapers.

This is the Bloomberg Surveillance podcast, available on Apple, Spotify and anywhere else you get your podcasts. Listen live each weekday seven to ten am Easter and on Bloomberg dot com. The iHeartRadio app tune In, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal